Why Worst of Trump Effect May Miss Australia

As global markets brace for an era of protectionism under US President Donald Trump’s second term, Australia appears positioned to weather the storm better than most trading nations. This, despite recently being denied an exemption from steel and aluminium tariffs. Analysis from leading economists suggests that although no country will be totally immune to trade disruption, Australia has several advantages that could shield it from the harshest measures. Oxford Economics head of macroeconomic forecasting Sean Langcake is “cautiously optimistic” about how Australia will navigate Trump’s trade policies. “It’s true the US is important to us [as a trade partner]. It’s our fourth largest destination for goods but it takes less than a 5 per cent share of our exports in total,” Langcake told The Urban Developer at the Oxford Economics Construction and Housing Outlook in Melbourne in February. Trump has implemented a series of escalating tariffs in recent months. Chinese imports now face a 20 per cent levy, up from an initial 10 per cent. Mexico and Canada have been hit with 25 per cent tariffs, though with significant exemptions for goods shipped under the US-Mexico-Canada Agreement. Trump has doubled tariffs on Canadian steel and aluminium from 25 to 50 per cent, citing Canada’s decision to charge US energy customers more. Oxford Economics managing director Innes McFee said Trump’s tariff agenda, on a historical scale, constituted “a level of protectionism from the US that we have not seen since the late 1940s” with more aggressive scenarios potentially returning protectionism to 1930s levels. ▲ Oxford Economics head of macroeconomic forecasting Sean Langcake (left) and lead economist Ben Udy. For Australia, the immediate impact of the blanket 25 per cent tariff on steel and aluminium exports appears limited. Australia exported $640 million worth of steel and $440 million of aluminium last year to the US. This $1-billion trade is a small amount compared with the nation’s total exports of $660 billion in the past financial year. Trump decided against granting Australia an exemption from steel and aluminium tariffs because, as White House Press Secretary Karoline Leavitt said, he wanted “America-first steel” and “if they want to move their steel manufacturers here, they’re welcome to do so”. Some speculate Trump’s decision may be due to a “broken promise during the president’s first term to limit aluminium exports”, as revealed in formal White House documents. However, the Biden White House reportedly asked Australian suppliers to boost exports after Vladimir Putin’s invasion of Ukraine in 2022 cut off supplies from Russia. Despite these issues, Australia remains less vulnerable to Trump’s tariffs than most other countries. Oxford Economics lead economist Ben Udy said that countries in the “danger zone”, such as India, Thailand, South Korea and Japan, imposed higher tariffs on US goods than vice versa while also running trade surpluses with America. This made them prime targets for Trump’s trade policies, whereas Australia was positioned more favourably. ▲ A container ship at Port of Melbourne Swanson Dock container terminal. Australia’s favourable positioning stems from several factors. Australia imposes effectively zero tariffs on US goods, leaving no basis for further “reciprocal” tariff increases. Australia runs a trade deficit with the US, meaning America sells more to Australia than it buys—a metric Trump has consistently prioritised. Australia’s goods and services tax (GST) rate also works in its favour should Trump consider broader tax structures. “Australia has a lower range of GST than most other economies,” Udy says, comparing Australia’s 10 per cent GST to New Zealand’s 15 per cent and the even higher value-added tax rates common across European countries. Australia also has remarkably few trade disputes with the United States. While countries such as China and the EU have faced dozens of US complaints at the World Trade Organisation, “Australia’s had one outstanding complaint from the US”, Udy said. Analysis from ANZ Research confirms this outlook. In a recent report, ANZ economists said, “Australia runs a large goods trade deficit with the US and is unlikely to be directly impacted by US tariffs”. According to the bank’s research, US steel and aluminium tariffs were likely to have minimal direct impact on Australia’s goods exports, in aggregate. Aluminium and steel exports to the US made up just 0.2 per cent of Australia’s total goods exports in 2024. AMP Capital deputy chief economist Diana Mousina said exporters should be able to find alternative markets, pointing to Australia’s success in redirecting exports during China’s restrictions on coal and agricultural products in recent years. ▲ Coils of rolled steel being transported on rail freight wagons passing through rural area in Victoria. “We actually managed to redirect those exports to other parts of South-East Asia extremely well,” Mousina said. The Australian Government has opted for a measured response. Prime Minister Anthony Albanese called the US tariffs “entirely unjustified” but said the Government would not impose reciprocal tariffs on the US, which he said would raise costs for Australian consumers and be an act of economic “self-harm”. Australian Industry Group analysts said the real concern for Australian manufacturers wasn’t the direct impact of US tariffs, but the potential for global market distortion. Local steel and aluminium industries are collaborating with government officials to strengthen anti-dumping measures, protecting the domestic market from potential flooding by products diverted from the US. “The news Australia has not secured a US tariff exemption is disappointing but not unexpected,” Australian Industry Group chief executive Innes Willox said. “It sets the scene for more uncertainty in the period ahead.” The primary risk for Australia is indirect exposure through key trading partners, particularly with China, which accounts for 6.6 per cent of GDP in exports. US-China tensions could slow demand for Australian goods. Looking ahead, Langcake sees global trade entering a period of “slowbalisation” rather than deglobalisation—a stagnation rather than reversal of global integration, which he said could increase Australia’s trade with Asia as other nations reduce their US dependence. While global trade faces significant headwinds, Australia’s favourable tariff profile, positive trade relationship with the US, and strong position in Asian supply chains provide meaningful buffers against the worst effects of protectionism. Willox said it was not Trump’s tariffs we should fear—“The real danger is the chilling effect it will have on trade and supply chains globally, and the negative impact it will have on a global economy that is already limping”.

Why Worst of Trump Effect May Miss Australia

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